Feds warn states: Don’t come to us, the well is dry

Cut spending, raise taxes and fees, and accept billions of dollars from Congress. That’s been the formula for states trying to survive the worst economy since the 1930s.

As Republicans prepare to take control of the House and exert more influence in the Senate, it’s clear that option No. 3 will soon wither. States will continue to face substantial deficits over the next few years, but they will have to get by with the end of stimulus spending and less financial help from the federal government. In recent interviews, top GOP lawmakers made clear it will be much less.

“We’ve got to put our fiscal house in order in Washington, D.C.,” said Rep. Mike Pence of Indiana. “It’s going to be essential that leaders at the state level roll their sleeves up, make the hard choices and put their fiscal health in order, as well.”

Rep. Kevin McCarthy of California, the new House majority whip, said GOP lawmakers will try to provide states with relief by cutting their expenses, not by giving them more money. For example, he advocates repeal of the national health care reforms enacted last year.

“More importantly, what the states can really hope for is that we turn the economy around so revenues will pick up,” he said. “But Washington is in very bad financial shape itself.”

McCarthy said the GOP would be focused on cutting mandates and giving states more flexibility on how they spend federal money.

The $814 billion stimulus program, passed by a Democratic Congress and championed by President Barack Obama, was designed to help states provide essential services and give a boost to the economy. Most of the money will run out this year.

States spent the bulk of their money on public schools, higher education and health care, so those programs likely will take a hit this year. But transportation, prisons and services such as early education programs also will not be spared the budget ax, said Todd Haggerty, a policy analyst with the National Conference of State Legislatures.

“Anything and everything is going to be affected,” he said.

As of June 30, 2011, the federal government will have spent about $165 billion on temporary aid to the states to help them weather the recession. The states have used most of that money on education and health care — keeping teachers in the classroom and reimbursing doctors and hospitals for treating the growing number of people eligible for Medicaid.

States will continue to get some stimulus money for road, energy and high-speed rail projects, but that money helps fund specific projects and wasn’t intended to plug holes in a state’s operating budget.

California has benefited substantially from federal assistance that will soon run out. It is expected to receive a total of $85 billion from the Recovery Act, with about $51 billion awarded to date, according to the state website monitoring the spending. About half of the amount spent so far is for Medi-Cal payments, unemployment insurance, food stamps and other safety-net programs.

California state Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento, said it’s disappointing but not surprising that states are not likely to receive more federal help.

“The economy is not going to improve as fast by increasing the unemployment rate. And whether in the public sector or private sector, a job is a job is a job,” Steinberg said. “We know that’s what the Republicans ran on in part during the national campaign, so we recognize we’re going to have do deal with reality, and we will.”

A slowly improving economy means many states should see an uptick in tax revenue in the coming year, but it will not be enough to replace the stimulus money. Without federal aid, the majority of legislatures around the country will not have enough money to maintain current services and face another round of budget cutting.

States closed a cumulative budget gap of nearly $84 billion in the last fiscal year. In the coming year, 31 states and Puerto Rico face budget shortfalls totaling $82.1 billion, according to the National Conference of State Legislatures.

“You have the federal money running out, but very deep state budget problems are lingering,” said Phil Oliff, a policy analyst at the Center on Budget and Policy Priorities, a liberal think tank based in Washington. “That’s why we say the coming fiscal year could actually be the worst budget year states have faced since the start of the recession.”

There also is a sense among many governors that seeking more temporary aid would delay tough decisions about what the states can afford in the long-term.

Governors are facing an era of slow economic growth combined with growing pension liabilities, said Ray Sheppach, executive director of the National Governors Association. Most know they must get spending down to a sustainable level, he said.

Illinois’ spending is so out of whack that Democratic Gov. Pat Quinn wants to borrow at least $3.7 billion to cover this year’s payment for the state’s public pension systems, and state contractors are being forced to wait six months or more to get paid. Its $15 billion deficit for the coming fiscal year is 58 percent of the state’s entire general fund.

Federal stimulus money provided a big boost to the state — some $13 billion total, with more than 40 percent of that going to unemployment insurance and more than $3 billion to education.

Quinn’s budget spokeswoman, Kelly Kraft, said the state has received 92 percent of what it’s owed in stimulus money and that it’s too early to say whether it will receive more in the coming fiscal year.

“There’s an unspoken hope among a lot of people that the federal government will come in and help out the states again,” said Rep. John Bradley, a Democratic Illinois state lawmaker who chairs a finance committee. “I’m not part of that group.”

Bradley said he is not convinced that Congress would ease any requirements to lessen the states’ burden for mandated programs, and said economic recovery programs already had relieved states of many traditional mandates.

“We don’t have the tax base we once had. The loss of American manufacturing has caught up to us,” he said. “We have to cut back on services or tax the reduced base at a higher rate.”

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Associated Press writers Judy Lin in Sacramento, Calif., and John O’Connor in Springfield, Ill., contributed to this report.

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10 Responses to Feds warn states: Don’t come to us, the well is dry

woody188

January 6, 2011 at 3:21 pm

Lots of flawed thinking in this article. First, no where is it mentioned that we could end fruitless wars in the Middle East and save trillions. How about ending that $91 billion per year “War on Drugs” that has lasted for 30 years and has had no significant impact?

Second, they can’t turn the economy around without leaving so called “free trade” agreements and renegotiating for real free trade where gains are re-invested into the home economy versus outsourced and off-shored. Labor arbitrage is not trade and does not meet the Ricardian conditions for comparative advantage upon which the case for free trade is based. Anyone claiming off-shoring is free trade should be flogged with a wet noodle and their motives questioned.

Third, get rid of the Federal Reserve and the interest we pay on using our own money. Our interest payment on debt is among the top three Federal expenditures per year. The other two, the Pentagon, and Social Security. Why do bankers get a free ride?

…whether in the public sector or private sector, a job is a job is a job…

At a simple level to the common man, this is true. But a public sector job does not create wealth or return wealth back into the system like making and selling goods. It is like the law of diminishing returns. Each public sector job eats up more of the wealth from the private sector, and when it surpasses the wealth of the private sector, it will eat up itself as well until we are in a position as we are today where they have to “quantitatively ease” ie, PRINT MONEY in order to pay the bills.

Carl Nemo

January 6, 2011 at 3:52 pm

Your analysis is spot-on, but this AP article is part of the atypical MSM sponsored non-news story. This isn’t a case of flawed thinking, but skewed analysis for the benefit of the shadowy oligarchs’ status quo; ie., propaganda for sure.

Our leadership is obviously out to “fail” America in order to bring in a multi- hybrid nightmare of corpo-faschista-communism known as the New World Order. We’re becoming nothing but serfs on their greater global plantation with the U.S. devolving into just a minor part of the whole within this new age corporatist feudal system.

Also, we no longer have a Congress, but simply a hand-clapping politburo of faciliatory simps who take their marching orders from the aforementioned oligarchs via their corporate sponsored lobbyists. As the old saying goes…”money talks, bullsh*t walks”!

Thanks Almandine for the link. I believe it was supplied with another post. It’s worth reading for sure.

I also find it interesting they show the USS America listing to starboard, stern up and soon to take a “Nantucket sleighride to the bottom”.

No doubt the gutless, nation-wrecking weasels on the bridge; ie, the Executive, Congress and Scotus will have had a chopper flight to safety leaving “We the People” to fend for ourselves.

Most of the lifeboats were sold off in various ports to short-fingered business types all for a few dollars more… / : |

Carl Nemo **==

Almandine

January 6, 2011 at 6:57 pm

Some links bear repeating…

Carl Nemo

January 6, 2011 at 3:58 pm

“atypical MSM”: should read “typical MSM”

My apologies.

Carl Nemo **==

Fivebyfives

January 6, 2011 at 4:44 pm

In the 1930’s, Harry Hopkins was testifying before a Senate committee about public works projects, unemployment insurance, and the like. Back then they were considered rather radical approaches to an economic maliaise. One senator asked Hopkins, “Isn’t it true that in the long run things will improve and such projects are a waste of money?” Hopkins replied, “Possibly senator, but people have to EAT in the short run.”

How ironic that over 75 years have passed and no one has learned a thing. Next thing you know we’ll be prepping for a real bloodbath over “states rights.” Oh wait….we are, with the leadership of Jim “Call me Calhoun” Demint.

What confuses people is the lack of distinction between capitalism and rampant pillaging by corporate raiding parties. So many inside I-495 keep going on about the sheep while ignoring the (weatlhy) wolves under that clothing. The states are going to be left to their own devices….unfortunately the causes of their collective deficits can be attributed to more than just wasteful spending. Like the last Depression, there are economic forces afoot that few understand, and certainly the “powers that be” see no alternative to the conventional wisdom.

This so-called “recovery” that is frequently mentioned is just like the one at the beginning of this century. The statistics will show this and that, but the jobs will not be there. And OF the jobs that appear, most will be of lower pay and benefits that existed before. This is part of what Carl refers to as the NWO.

It’s been many years since I read 1984, but there is something so Orwellian about “experts” assuring us that closing our eyes while driving off a cliff will not result in injuries…in fact will benefit us greatly. Letting the states go hang may sound “tough” and “pragmatic” but there are PEOPLE in those states who will pay an enormous price in order to square the books to satisfy an ideology.

Sorry if I digress, but Woody mentions the fruitless wars that are extremely expensive in both blood and treasure. I thought Iraq was a mistake from the beginning, and Afghanistan is now so. However, I find it quite troubling that so many in power who whine about not having enough tax cuts recoil at the horror of actually paying for these combat operations. They absolutely do NOT put the blood of their families at risk, so why not cough up a few bucks to pay for what they want?

Forgive any typos…peepers aren’t working so well today.

b mcclellan

January 6, 2011 at 10:23 pm

Pop said,
the more light,
peepers get tight.

Typo’s are warm.

DejaVuAllOver

January 7, 2011 at 8:40 pm

I got a great money-saving idea: How about we (the 50 states) all declare independence from the rotten, degenerate filth known as Washington. Since it’s clear that Obama is in bed with the enemy and won’t deliver ANY reform for working people, how about we just tell the MIC, the Pentagon, the Israelites, the bureaucrats and the scum-sucking international banking cartel to go to Hell. Yeah, it’ll be messy. But I don’t see any other way.

eve

January 7, 2011 at 9:33 pm

Woody188, DejaVuAllOver and I pretty much agree on how to fix the mess.

Americans have to turn off their televisions long enough to snap back into reality.

TV passifies the mind and suddenly life isn’t what it is because you’re watching a “happy beach moment” on the idiot-hypno box.

Meanwhile, in the “real” world, you live in a neighborhood which is becoming littered with foreclosed homes and deteriorating roads. Shops on main street are closing down and you don’t notice because you’re rushing home to catch the game on ESPN.

When most Americans can no longer afford their cable bill and the choice becomes food or TV, it’s at that exact moment they’ll realize how careless and irresponsible they have been.